What has changed since 2008 that caused veteran hedge fund managers to underperform and close shop?

[Scataphagos]

Dang that is very interesting. Is it just that everybody is trying to out-game everyone else, so when one guy picks up on something and it is working, soon enough others will pick up on it and arbitrage (maybe not the right word, but you get my drift) away any excess profit, and maybe take advantage of knowing the first guy's thinking, in essence taking his lunch money? Is it as simple as its a dog-eat-dog world out there, and you need to be constantly evolving, even moreso these days?

A few things...

1. The principle of "Keep doing what has worked and the market will eventually knock you on your ass". (Applies more to "theme" players than traders) IOW... "getting it right" is a "right now" kind of thing. We tend to think of star players in the "now" as truly star players... the ones who are smarter and will keep knocking it out of the park in the future. For the most part, that's wrong. Lots of examples.

2. The market changes. (See point #1) As a trader/investor, YOU have to be aware of change and adapt.

3. Lesson... "Keep trying to get it. When you do, make something of it. Always trade with stops. If you're going through a period when you're not doing as well as you like, keep as much of your capital intact as you can (stops) for the next time you get it right".

4. 80/20. Just as most traders' gains come from 20% of their trades, most players' CARRERS show the same 80/20. That is, your best years... 20% of all of your years.... will hold the lion's share of your career gains. It's worth a lot over time if the "80% not my best years" are somewhere between small losses and modest gains.... or better, if you can muster it.

 

[fan27]

Here is my take away:

1. Trade multiple strategies
2. Assume that at some point strategies will lose their edge
3. Use metrics to determine number 2 and remove strategies when necessary
4. Have pipeline for finding new strategies
5. Don't get blown out

 

[steetbeat]

prior to 2008 crash, banks and brokers and firms were investing more of their own money into the 'market' now it's all pension money or client money. that has way less margin. professional have 90% margins intraday and all the volume is professionals. professionals meaning people who trading is their main source of income or bread and butter.

 

[steetbeat]

less trading capital. or risk capital

 

[lawrence-lugar]

The key basic takeaway from the 2008 mess...is to not use maximum leverage on crazy, weird, exotic bets.

And everyone was drinking the same Kool-Aid. and buying and selling and transferring risks around to everyone else for commission.
And to some degree, fraud and misrepresentation.

What you have or had essentially was a Perfect Storm brewing for inevitable implosion.
I guess...there are some correlated lessons from this event...that could be translated and learned for the retail trader.

But more importantly, it's 2018...Make Trading and Your Life Great Again...High-Five`

 

[Handle123]

Don't know how much experience most of you have regarding OPM, people redeem in big chunks, so might not have enough on hand so you have to liquidate positions even when you doing well against the Index. Plus, many trend manager are horrible at reading tops and short ES at wrong times to hedge. And many never want to hedge even though they think highs are close and they stop buying replacement stocks. Or they get tired of long hours. Great deal stress to produce.

 

[DeltaRisk]

So if someone has caught onto the methods this guy was using, can one think out further and try and get ahead of THEM? Maybe if like you look back at stuff that has worked over the last decade, and figure that tons of people are now trying that, its been had, and just DO THE OPPOSITE. Something like that. I have no idea.

Usually what happens with any successful trader is that their trading strategy gets copycatted until it no longer becomes profitable. Hence why traders protect their strategies with NDA’s and non-compete agreements.

I’m not sure how shadowing a formerly efficient strategy would work, or how taking the opposite side would work. That would be gambling on expectancies rather than having an outright edge.

Now, if you copied me right now you’d be very profitable, but 99% don’t have access to what I can trade. It’s not fundamentally different that what most retail trades, it’s just you have to have in place the proper permissions.

 

[grm2017]

Every time you place a trade in FUTS your trader ID goes with the order file. CME requirement. Familiarize yourself with the TAG system. Market makers know exactly who's in at any given nanosecond of time, where they entered, averaging in, etc. and exploit this edge to the max. With today's technology Trading 'Supply /Demand' on too short a time or range frame is a recipe for disaster. Less trades, smaller size spread over several accounts, larger frames - swing trading. Market makers can turn on/off volatility with the blink of an eye. Much of 2017's price action demonstrated that rather clearly.
Here's Tag 50 www.cmegroup.com/rulebook/files/cme-group-Rule-576.pdf

 

[murray t turtle]

What happened to Whitney Tilson is interesting. For the first 11.5 years of his hedge fund career, his returns through the period was 184% versus only 3% in the broder U.S stock market. Wonderful outperformance indeed. For the next 7 years since 2010, he trailed S&P500 index. 2017 was truly terrible. 2017 was a bull market for stocks. I expected it to be an idiot market where even know-nothing throw-darts idiots can make lots of money but Tilson lost 9%. I can understand if he was a trend-following CTA who lost money in other non-equity asset classes in 2017 but not when he invested mainly in equities. What was ironic that it was a 9-year bull market that finally killed him over the years.

This is all very puzzling. After 11 years of experience, his performance should improve further. Yet, it declined. Worse still, performance declined in a bull market??!! Why didn't the tailwind provided by a bull market helped veteran hedge fund investors like him? He is not the only veteran hedge fund managers who fail. Tilson is joined by Eric Mindich, Neil Chriss, Hugh Hendry, John Griffin who failed along with him.

What has changed in the stock market that cause these veteran hedge fund managers to fail so miserably in a bull market full of tailwinds?

https://www.institutionalinvestor.c...he-last-days-of-whitney-tilson's-kase-capital

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Good read,he admitted what he was doing was fun; then, for years it turned not profitable.WE cant blame it on his school, Harvard. IBD founder went there also.....

 

[grm2017]

You cannot overestimate the impact of advances in technology used by the exchanges and their designated market makers in the changes seen since 2010. Market transitioning from floor to screen, availability of unlimited capital provided to corps to buy back their stock (hence drive up the market) and central bank participation (actually buying product to keep the market bolstered) led to some of the biggest manipulations of price action in the history of modern markets. Permabears and those trading a mean reversion strategy to the downside got taken to the cleaners in the process.